Newsletter OCTOBER 2018

Tax Law Update1. Discarding the need to use a copy of ID card and house registration for the implementation of the Revenue Code and other laws that are within the authority and function of the Revenue Department.2. Rules and procedures to use the Tax Single Sign On service system.3. Deputation Rules to refund Value Added Tax (VAT) for Tourists.4. The use of the accrual basis to calculate the income and expenses of a company or juristic partnership with respect to leasing a property5. Income Tax exemption criteria for investors subscribing to shares or investing in the establishment of or in the increase in registered share capital of a company or juristic partnership (provided it falls under a new start-up target industry).6. Income Tax exemption criteria for prenatal care expenses and obstetric delivery expenses.

Tax News1. Tax measures for the establishment of Trade and Economic Offices set-up in Thailand which are approved by the cabinet under an agreement.2. Draft Proposed Rule amendment to the Revenue Code (No...) BE .... regarding tax collection from General Fixed Income Fund investments.

1. Discarding the need to use a copy of ID card and house registration for the implementation of the Revenue Code and other laws that are within the authority and function of the Revenue Department. The Notification of the Revenue Department dated August 31, 2018 stipulates the cancellation of the use of a copy of ID card and house registration for the implementation of the Revenue Code and other laws that fall within the authority and function of the Revenue Department, including notifications, rules, orders, or other regulations of the Revenue Department, except for the following cases: 1.) In case a copy is necessary and required by the Revenue Department; 2.) In case of delegation of authority to another person (such as a delegation made under a power of attorney). For more details, please see: https://bit.ly/2CEsrAn

2. Rules and procedures to use the Tax Single Sign On service system. The Notification of the Ministry of Finance, requires those who wish to file a petition, application, form, or any legal action in the form of electronic information with the Revenue Department, the Excise Department, and the Customs Department, to register for Tax Single Sign On service via the internet through the website of the Ministry of Finance (https://etax.mof.go.th), by using one single username and password to access multiple taxation services. This Notification shall be applicable from 16 July 2018 onwards. For more details, please see: https://bit.ly/2NvUypA

3. Deputation Rules to refund VAT (VAT Refund for Tourists) The Notification of the Director-General of the Revenue Department on Value Added Tax (No. 224) stipulates the eligibility criteria for departing foreign tourists who purchased goods (to take out of Thailand) from retailers participating in the VAT refund scheme. The Notification provides that the departing foreign tourists shall be entitled to appoint an agent which have been approved by the Director General of the Revenue Department to refund VAT (that has already been collected) at 2 international airports, namely Suvarnabhumi International Airport and Don Mueang International Airport. The authorization certificate could be made between October 1, 2018 to March 31, 2019 for refund of VAT in cash not exceeding 12,000 baht. Those parties who wish to engage in such business can submit an application to the Revenue Department for approval in accordance with the specified criteria and conditions. The Notification provides that for persons traveling outside the Kingdom, they must inform their intention to request a VAT refund, provide a full tax invoice, and apply for the VAT tax refund in accordance with the prescribed rules. In addition, the goods purchased together with the VAT refund request (form P.O. 10 ) along with the relevant tax invoice must be presented to a customs officer at the airport before traveling outside the Kingdom in order to enable the customs officer to certify the VAT refund request (P.O. 10 form). If the traveler complies with the terms of this Notification, the Revenue Department will refund the VAT to the eligible person through a representative that has been approved by the Director-General of the Revenue Department. This Notification shall be applicable from 5 September 2018 till 31 March 2019. For more details, please see: https://bit.ly/2OWZOzS

4. The use of the accrual basis method to calculate the income and expenses of a company or juristic partnership with respect to leasing a property Revenue Department Order No. Tor Por 299/2561 cancels Clause 3.4 of the Revenue Department Order No. Tor Por 1/2528 and specifies a new method to calculate income and expenses of a company or juristic partnership, as follows: If a taxpayer operates a business involved in renting out a property, then its rental income or installments and related expenses shall be included as income and expenses in each accounting period proportionally with the rental period by using the accrual basis method in Clause 2 or such other appropriate method provided that it is done in accordance with generally accepted accounting methods. As for a tenant, the rental expenses or the installments and related expenses shall be included as income and expenses in each accounting period proportionally with the rental period by using the accrual basis method in Clause 2 or such other appropriate method provided that it is done in accordance with generally accepted accounting methods. When an entrepreneur chooses one of the methods to calculate income and expenses for income tax liability, such method must continue to be used on a perpetual basis, unless such change to the method is approved by the Director-General of the Revenue Department. This order shall apply to the calculation of income tax of a company or juristic partnership for accounting periods beginning on or after 1 January 2018. For more details, please see: https://bit.ly/2Nl837q

5. Income Tax exemption criteria for take shares or invest in the establishment of or the increase in shares capital of company or juristic partnership (New Start-up target industry) The Notification of the Director-General of the Revenue Department on Income Tax (No. 330) stipulates the criteria for exemption of income under Ministerial Regulation No. 337 (BE 2561) on investing in the establishment or the increase of capital of a company limited or juristic partnership provided that it does not exceed a total of 100,000 baht. To be eligible the taxpayer must hold the following documents, including, a copy of the shareholder list i.e. Form BorOrJor5 (in case of holding shares in a limited company), a copy of the certificate of payment as prescribed by the Director-General of the Revenue Department, which is ready to be assessed by the assessment officer. If income tax has already been exempted, but the taxpayer does not continue to hold the shares until the maturity date of 2 years from the date of payment, then it shall be deemed that the taxpayer is not entitled to an exemption from income tax and must pay income tax for the previous tax year including surcharges in accordance with the law. As for a company or a juristic partnership (New Start-up Target Industry) where the taxpayer has already paid for the shares or invested in the establishment or capital increase, however the company later became lack of qualifications prescribed in the above mentioned Ministerial Regulation. An extension for filing for the additional personal income tax return will be granted until March 31st of the year following the expiration date of the submission of the corporate income tax return for the accounting period in which the company or juristic partnership fails to qualify without the need to pay a surcharge. For more details, please see: https://bit.ly/2QrNIzd

6. Income Tax exemption criteria for the prenatal care expenses and obstetric delivery expenses The Notification of the Director-General of the Revenue Department on Income Tax (No. 331) stipulates an exemption on income tax paid by a taxpayer or their spouse which is paid for prenatal care expenses and obstetric delivery expenses, regardless of whether it is paid to a public or private hospital. This exemption is granted according to the actual amount but must not exceed 60,000 baht per birth. This Notification shall come into force from 1 January 2018. For more details, please see: https://bit.ly/2NdeLfi

Tax News1. Tax measures for the establishment of Trade and Economic Offices set-up in Thailand which are approved by the cabinet under an agreement. On October 2, 2018, the Cabinet gave in principle approval to set tax measures for the establishment of Economic and Trade Offices established in Thailand which are approved by the Cabinet according to the agreement as follows: 1. The rate of 0% shall be used to calculate the value added tax liability for the sale of goods or services to eligible international organizations in accordance with the rules prescribed by Director-General, such international organizations include the United Nations, Embassies and Consulates, etc. 2. The exemption of all kinds of taxation levied by the Revenue Code from the Office specified under 1 (above). including its staff and others, who shall be exempted as follows; 2.1 the office of the organization and the director’s residence; 2.2 the vehicles of the office and the personal vehicles of the office staff; 2.3 Salary, compensation and allowance which the officers receive from a department derived from carrying out its operations in Thailand. For more details, please see: https://bit.ly/2Nj9iE7

2. Draft Proposed Rule amendment to the Revenue Code (No...) BE .... regarding to tax collection from General Fixed Income Fund investment On August 28, 2018, the Cabinet gave in principle approval regarding tax collection from General Fixed Income Fund investments as follows: 1. Cancelling the definition of “Mutual fund” as stipulated in article 39 of the Revenue code including cancelling and adjusting the article regarding the Mutual fund as mentioned above. However, the article shall still be enforced against the Mutual fund established before this rule is enforced. 2. The Stock Exchange of Thailand or the Mutual fund established under the Securities and Exchange Act and the juristic person specified by the Director-General of the Revenue Department and approved by the Minister of Finance which have been published in the Gazette that are a company or juristic partnership under article 39 of the Revenue code. 3. The draft Proposed Rules stipulates that the benefits derived from the transfer of unit of funds which can be appraised into monetary value, the amount exceeding the invested value in mutual funds that are established under the Securities and Exchange Act or established under foreign laws, to be an assessable income according to article 40 (4) (g) of the Revenue code. However, please note that Thai and foreign individuals are still exempt from personal income tax for the benefits derived from the transfer of unit trusts in mutual funds that are established under the Securities and Exchange Act (Profit on Sale of Unit trust in Mutual Funds). 4. Thai individuals may choose to pay Personal Income Tax for the share of profits received from mutual funds established under the Securities and Exchange Act at the rate of 10 percent without including it in the calculation of personal income tax. However, with respect to for foreign individuals 10 percent of income tax will be withheld. 5. It stipulates that the corporate income tax rate applicable to mutual funds that are established under the Securities and Exchange Act shall be taxed equal to 15 percent of income before deduction of any expenses. For more details, please see: https://bit.ly/2y3a2Zh

Facts:On July 7, 2011, Mrs. Por had entered into a land lease agreement (“Land Lease Agreement”) with Company Bor for a period of 30 years (from January 1, 2014 to December 31, 2043). Company Bor agreed to pay a land leasing fee of 87,500,000 baht, however, on the same day of entering the Land Lease Agreement, Mrs. Por entered into a usufruct agreement (“Usufruct Agreement”) with her 3 nephews (“Plaintiffs”) to enjoy a lifetime usufruct on the same land. Therefore, Company Bor agreed to pay the land leasing fee and monthly payment to the Plaintiffs as usufructuaries’ and Company Bor had a duty to withhold tax according to the law and the portion as agreed in the additional agreement. Thereafter, Mrs. Por and the Plaintiffs registered the Usufruct Agreement with the officer and the Plaintiffs included the land leasing fee, which was divided into portions, when calculating their respective personal income tax (PIT) for filing a PIT Return for Taxpayers Filing in Advance (P.N.D. 93 form) and paying their income tax in advance.

On March 30, 2012, the Plaintiffs filed a PIT Return for Taxpayers with Income in General Cases (P.N.D. 90 form) in order to obtain a refund of their PIT for year 2011 with respect to the money withheld by Company Bor that was remitted to the Defendant according to the Withholding Tax Certificate. The Defendant then sent a letter to inform them of its refusal to refund such money to the Plaintiffs because the Plaintiffs did not have the right to request such refund.

Legal issue:Did the Plaintiffs have a right to request the refund or not.

Court’s judgment:In this case, Mrs. Por, who was the owner of the land, had entered into the Land Lease Agreement with Company Bor for a period of 30 years with a total land leasing fee of 87,500,000 baht. On the same day, Mrs. Por made an agreement to let the Plaintiffs be usufructuaries for the land leasing fee and the monthly payment which would be paid by Company Bor. However, Mrs. Por and the Plaintiffs registered the usufruct agreement to the officer after the land lease was entered into, therefore, the Court held that the taxpayer who had the income from the Land Lease Agreement was Mrs. Por and as such the Withholding Tax Certificate that was issued by Company Bor to the Plaintiffs was in fact issued to the wrong recipients as it should have been isused to Mrs. Por. Thus, the Court decided that the Plaintiffs did not have the right to request the tax refund from the Revenue Department.

Legal OpinionThe author agrees with the Supreme Court’s judgment because Section 61 of the Revenue Code prescribes that “where the name of any person appears in any important document showing that:

(1) he is the owner of the property specified in a written document and such property generates an assessable income, or(2) he derives an assessable income by virtue of such document;the assessment official shall have the power to assess and charge the whole amount of tax on such income to the person whose name appears in such document. However, if such person transfers the assessable income to another person, he is entitled to deduct the tax amount imposed on the amount of assessable income which is transferred to that other person.”

. Therefore, the assessment officers have the authority to collect tax from Mrs. Por given that she has ownership of the land according to the title deeds and was the person who signedthe Land Lease Agreement with Company Bor,. Moreover, Mrs. Por registered the usufruct agreement to the officer after the land lease to let the Plaintiffs as usufructuaries to receive the land leasing fee and monthly payments paid by Company Bor instead of herself. Given that the Plaintiffs did not have any other evidence or document that can prove without doubt that the Plaintiffs were the ones who received the benefit, this case deemed to be a case where there was no other or insufficient evidence or document to prove without doubts that the Plaintiffs were agents. Thus, the assessment officers assessed the tax from Mrs. Por given that she had the ownership of the title deeds or had her name in the other important documents and therefore it was correct in the writer’s view that the Court found that Company Bor must pay the payment and withhold the tax under the name of Mrs. Por. Therefore, the writer agrees with the Court’s decision whereby that the Plaintiffs were not found to be the recipients of such income and as such did not have the right to request for the tax refund.

Moreover, the author has an opinoin that Mrs. Por and Company Bor should discuss to revise their Land Lease Agreement by making the Plaintiffs, who were the usufructuaries of such land, to instead be the lessor as this would directly entitle them to receive the payment from Company Bor in order to make the Plaintiffs to be the lawful recipients of such income.